Process Configurations and Matrics

Operations Management: Organization and Analysis
Professor Gopesh Anand and Ujjal Kumar Mukherjee
Module 2: Process Configurations and Metrics
Table of Contents
Module 2: Process Configurations and Metrics........................................................................ 1
Lesson 2-1: Process Arrangements and Operations Strategy ............................................................. 2
Lesson 2-1.1. Process Arrangements and Operations Strategy ........................................................................... 2
Lesson 2-2: Types of Process Arrangements ..................................................................................... 5

Lesson 2-2.1. Types of Process Arrangements..................................................................................................... 5
Lesson 2-3: Process Arrangements for Competitive Differentiation ................................................ 13

Lesson 2-3.1. Process Arrangements for Competitive Differentiation .............................................................. 13
Lesson 2-4: Process Mapping .......................................................................................................... 18

Lesson 2-4.1. Process Mapping.......................................................................................................................... 18
Lesson 2-5: Metrics to Assess Performance .................................................................................... 28

Lesson 2-5.1. Metrics to Assess Performance ................................................................................................... 28
Lesson 2-6: Little’s Law ................................................................................................................... 38

Lesson 2-6.1. Little’s Law ................................................................................................................................... 38
Lesson 2-6.2. Little’s Law Applications.............................................................................................................. 43
Lesson 2-7: Activities Within Processes .......................................................................................... 48

Lesson 2-7.1. Activities Within Processes .......................................................................................................... 48
Lesson 2-8: Capacity Utilization ...................................................................................................... 55

Lesson 2-8.1. Capacity Utilization ...................................................................................................................... 55
1
Lesson 2-1: Process Arrangements and Operations Strategy
Lesson 2-1.1. Process Arrangements and Operations Strategy
Processes consist of tasks or activities or steps that take inputs and convert them into outputs.
Inputs come from suppliers and outputs go to customers. And we can use this idea of input-
process-output for suppliers or customers that are within the facility that we're referring to, or
that are external to the facility. That is to say, internal customers and external customers.
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The transformation of inputs into outputs through processes is meant to add value to the inputs
and create something valuable for the customer. So, it is useful for us to assess how good the
process is at this value creation. The design of the process impacts alignment with the types of
customer needs. And the efficiency and effectiveness with which the process works impacts the
satisfaction of customer needs, as well as revenues and profits for the company.
One of the most fundamental decisions for building operations capabilities is the arrangement of
the process. Process arrangements are related to operations capabilities. Different process
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arrangements are better for targeting the operations capabilities of cost, quality, delivery, and
flexibility and thus for delivering different order winners and qualifiers for the customers. That is
the markets. Process arrangements determine how the activities in the process are arranged.
Arrangement means the layout of the activities. Process arrangement dictates how a unit of a
product flows or in some cases does not flow through the multiple activities or steps in a
process. The process arrangement also impacts the batch size that is used for each activity in
the process and for a unit to flow through the process. In turn, process arrangement regulates
how the inputs and outputs are timed, how the introduction of inputs into the process is timed,
and consequently how often, and with what cadence the outputs from the process are
generated. You can see from these reasons that it is crucial for the process arrangement to be
aligned with other operations strategy decisions in addition to operations capabilities and market
requirements.
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Lesson 2-2: Types of Process Arrangements
Lesson 2-2.1. Types of Process Arrangements
From a broad perspective, from a high level perspective, process arrangements can be
categorized into two types. A linear flow is one in which all the activities are involved in work on
one type of product at a time, and several units of the same product flow in a straight line
through the activities. For example, the high-volume assembly lines for assembling cars of the
same model.
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In contrast to a linear flow, a jumbled flow is one in which the activities are done at work centers
that can be working on unique versions of the same product. Every unit of the product may not
follow the same path, and some units may even return to the same work center multiple times.
Sometimes the product may not flow at all and the technicians and the associated tools for
different activities may be brought to the unit that is being worked on, for example, for custom
designing a car. These two are somewhat extreme categories of process arrangements, and
there is a more precise classification consisting of five different process arrangements that we
commonly use to classify processes based on the arrangements of the activities within them.
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This classification of five process arrangements was proposed for manufacturing businesses,
but has also proved to be useful in the context of service organizations. The process
arrangements are laid out on a graph that has volume on the x-axis. On the y-axis, there are
three aspects, variety, flexibility, and cost. The process arrangements fall on a spectrum that
goes from continuous to project, and the five common arrangements on this spectrum are
depicted at different spots on that diagonal line. This line also reflects the inherent trade-offs in
the process arrangements. At high volumes, the costs are low, which is good. However, in
achieving that low cost advantage, variety and flexibility are traded off. So the advantage of low
costs comes with the disadvantages of low variety and low flexibility. As a process arrangement
moves up on this diagonal, that is from the lower right to the upper left, there are flexibility and
variety advantages, but the low cost advantage is compromised. That is, it traded off and costs
become higher. A continuous arrangement is intended for high volume and low levels of cost,
but also does not allow for much flexibility and customization. A continuous arrangement applies
to products in which individual units are not meaningful when considering volume, for example,
in the production of gasoline. A single gallon is not meaningfully separable from the next gallon.
An assembly line arrangement also has a linear flow like continuous, but applies to discrete
units, such as assembly of computers or cell phones or cars. A batch arrangement can best be
described as similar to an assembly line, but one that has more interruptions in its flows, or in
which there are disconnected flows instead of a line that is connected all the way through. A
batch arrangement is used, for example, when a product is not being made in enough volume to
warrant its own line. The Job Shop is an arrangement that calls for jumbled flows through
activities that may not have all products requiring to go through all the workstations or all the
shops, and that may require units to even go back and forth among the workstations or the
shops. The project arrangement is one that is used to produce a unique unit for every customer.
In fact, a project is not even an arrangement in the conventional sense of the work. The
activities for the project are not conducted in a single facility, so to speak. The activities are
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called upon as needed, for example, in a project or big bridge construction, or arranging a
wedding celebration. It is important to note that processes we experience around us may not fall
exactly at one of the five spots of the diagonal, and may have more or less characteristics of
one or two adjoining types of process arrangements. Let's look at an example, each for the five
common arrangements that we have listed here.
Starting with the continuous process arrangement, the products in which the arrangement is
used are generally categorized as process industries. These products include for example,
gasoline, ethanol, and fertilizers. Most continuous process arrangements have a high degree of
automation and high costs of starting and stopping. These arrangements afford low flexibility
and customization. But they also offer low cost per gallon or per ton or per unit. The production
is continuous and in high volumes.
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The process arrangement that is most recognized when we mentioned it, is the assembly line. It
is used to work on discrete units of standardized product moving from one station or activity to
the next. These lines can be paced by humans passing a unit like a cell phone to the next
person. Or they can be automated using a moving conveyor belt. Line arrangements do not
support much flexibility and customization, but they do support low cost per unit. The production
is in high volumes. Line processes are associated with mass production of standardized goods.
Note that while most cars are made on assembly lines, customized cars may use a job shop
arrangement. So we can see that for the same product, depending on market needs, customer
requirements, different process arrangements or combinations of arrangements may be
warranted. Also, while an assembly line arrangement is low on the variety axis, indicating low
variety, car manufacturers have worked on building in capabilities to make a variety of cars on
an assembly line. By doing that, they are trying to move off the diagonal of the product process
matrix, and are trying to take advantage of the low cost based on high-volume while pushing the
envelope on variety. Generally, people working on assembly lines can get away with
concentrating on a specific portion of the production sequence. They may develop deep
expertise in a limited skill set.
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A batch arrangement can be an assembly line that is changed over to produce different
products more than aligners. For example, a medical products facility may use a set of
machines and switch among batches of different medications. A batch arrangement can also be
a job shop that may work on one product at a time instead of the usual multiple products
simultaneously, which is typical for a job shop. For example, a cheese manufacturing facility
may use its different workstations to work on one variety of cheese. One variety of cheese at a
time before cleaning up the machines and switching over to a different variety.
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In this example of a job shop arrangement, there are six workstations or departments. There are
four types of mechanical pencils that are being produced, depicted in blue, green, red, and
yellow colors. The four products, the yellow, the blue, the green, and the red, have different
sequences in which they go through the six departments as they go from being raw material that
is input, to becoming finished goods that are output. The job shop arrangement is high on
variety and flexibility, but it's also high on cost. It is not suited for high volume production. The
people working in a job shop usually need a broader set of skills than people working on
assembly lines, who can concentrate on getting skilled at a specific portion of the production.
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A project arrangement is associated with producing one unique unit of a product at a time, such
as Air Force One, the airplane used for the United States president. Other examples are
construction projects for roads and buildings in which resources have to be taken to the
worksite. Software installations and consulting assignments also use project arrangements.
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Lesson 2-3: Process Arrangements for Competitive Differentiation
Lesson 2-3.1. Process Arrangements for Competitive Differentiation
Here are examples of different production processes and their placement on the diagonal based
on their generally known characteristics of demand and related needs for production. These
placements are not fixed and they can change based on differences in needs for different
market segments. For example, party dresses can be more or less standardized and thus either
use the assembly line production or batch or job shop. However, this matrix is very useful in
recognizing the trade-offs. The compromises, such as having low variety and flexibility when
there is low cost of high-volume production.
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Operations can be designed using some surprising, some unexpected arrangements of

processes. Arrangements that buck the trends, so to speak, as well as some combinations of
multiple process arrangements. These deliberately different choices and combinations of
process arrangements can help companies get a competitive edge through operations by
fulfilling customer requirements in a way that is better than competitors. Here is an example of
an extremely specialized hospital, a hospital that offers care for only one type of ailment, only
one type of problem. The strategy of this hospital is to have a high volume of a particular kind of
procedure, a particular patient. This is Shouldice Hospital that specializes in a particular type of
Hernia Repair. The hospital gets very similar patients that need the exact same procedure. The
patients go through the more standardized process quicker than at other general hospitals, and
the costs for the hospital are lower. The process arrangement at this hospital is closer to an
assembly line as compared to a conventional hospital that is configured more like a job shop.
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There are businesses that have multiple process arrangements under one roof for different
types of products or different types of customers. These are sometimes referred to as factory
within a factory or plant within a plant arrangements. Reflect on the example of a bakery, any
bakery that makes standardized breads and also pastries and custom cakes. The bread making
may be done using a large batch arrangement. The pastries may use a small batch
arrangement or a job shop. Cakes may call for a job shop arrangement or even a project
arrangement. In a similar way off the shop floor motorcycles, those that are available to pick up
at a motorcycle showroom, versus customized motorcycles. Those where the motorcycle
aficionados, the enthusiast, orders highly personalized features called for different process
arrangements, assembly line and job shop.
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There can also be two process arrangements in sequence. For example, an assembly line for
manufacturing almost complete shirts, followed by a job shop arrangement for finishing touches,
such as different colored cuffs, different colored colors, and even adding monograms.
Generally, companies can consider differentiating from competitors by pushing the boundaries
of conventionally accepted trade-offs. The compromises that are implicit in the generic process
arrangements. Two examples of such strategies are mass customization and cellular
manufacturing. Mass customization is the use of mass production techniques, including
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assembly line arrangement while pushing the envelope on flexibility and variety by using
techniques such as quick changeover, modular designs, and cross-trained workers. Cellular
manufacturing pursues the idea of making greater variety in smaller volumes in cells while
minimizing transportation or delay or batching that are usually associated with job shop
production. Cellular manufacturing is aimed at greater variety and flexibility while keeping costs
in control.
The different process arrangements that we see on this diagonal have implications for the
business model that the company follows. Their inventory management and new product
development, that is their portfolio of products, some of which may be at the nascent stages of
development and some of the more mature stages. While the assembly line arrangement is
product-focused, that is, assembly lines are built for a few similar products, the job shop
arrangement is more process focused. That is, job shops arrange similar activities of the
process in departments through which the product is routed. Or in the case of services like
health care, the customer may be routed through all these different sets of activities. Second,
the assembly line process arrangement is geared for making finished product to stock, putting
finished goods in inventory based on forecasts of aggregate demand for a certain period. For
example, cars at dealerships, and cell phones at stores. On the other hand, the job shop is
geared more or less to make products to order using raw materials that are kept in stock. For
example, a high-class restaurant that prides itself on freshly prepared food, will make food to
order. Finally, from a product life cycle perspective, a novel, a newly developed product, may
usually start production in lower volumes, so perhaps a large batch arrangement or even a job
shop arrangement. It may then move to assembly line when it matures in its life cycle and has
greater volumes, higher volumes of production.
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Lesson 2-4: Process Mapping
Lesson 2-4.1. Process Mapping
What is process thinking? Process thinking is viewing and planning organizations in the way
that work is done, the way work flows horizontally from one activity to another, from one
department or function to another. So in this way process thinking is different from focusing on
the vertical departments and functions, like marketing analytics, purchasing finance, HR
management operations, accounting etcetera. The horizontal processes cut across the verticals
in an organization.
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Now take a few examples of processes here at Gies. Admitting students require steps or
activities from providing information about admission requirements, accepting applications,
assessing the applications and then sending out the decision letters. Scheduling classrooms
requires steps of collecting information about room capacities, getting requirements from
different departments, allocating the rooms and the times. Applying to the business accelerator
program iVenture requires similar to Gies admissions, inviting applications, getting expert
entrepreneurs to assess the applications and then providing decisions.
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In any business for that matter, any organization, there are processes for doing work. Hiring
employees requires creating job descriptions involving HR and the department which is looking
to hire that person. It requires screening, interviews, offers negotiations contracts, onboarding.
Manufacturers that make products such as cars or medical equipment, may need to recall
products due to defects and have a process that involves regulators such as the National
Highway Traffic Safety Administration or the FDA Food and Drug Administration and internal
departments including legal and R&D. Similarly, preparing financial reports such as quarterly
statements, calls for steps or activities for collecting the information, verifying, finalizing the
reports that can be used either for reporting or for analysis. Overall any work requires a set of
activities. A process and processes are all around us.
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A process map is a schematic, it's a visual, it's a drawing, a graphic, a diagram or a chart. It
depicts the activities in the process or the steps in the process. Once you see how you can do it,
it can serve as a starting point of discussion. Does someone else see differently? Should the
process be run differently? Are there improvements that we can make to the process? There
are many templates for process maps. Organizations adopt these templates so that there is a
common language. Some popular examples of such templates are swim lane diagrams, value
stream maps. Now such templates may have different focuses. The swim lane focuses for
example, on showing handoffs and the value stream focuses on flow of the product and on
value added at each step.
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Another type of process map that is popular are flow charts that are used for programming
purposes. Although there are many templates for process maps, some symbols are common.
Activities are usually depicted in rectangular boxes, stocks of inventory or people waiting in line
are depicted as triangles. Sometimes the triangle is upright. Sometimes it's reversed and arrows
typically depict the direction of flow of the product or customers if you're talking about a service
process.
Here is an example, a made up process for manufacturing goods where you can see the
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triangles are showing stocks or inventories at three stages. Now these inventories could be raw
materials, work in process and finished goods. There are four activities at different stages of this
process and it's also showing you the product flow. Now, here we see that there are two parallel
sets of activities. One has only activity A and one part has activity B, and activity C. This shows
that B and C are being done in parallel while A is being done and then activity D combines what
comes from the two parts.
Here is an example of a service process. This shows the steps and also it separates the
customer facing steps and the backroom steps in a coffee shop.
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Let's draw our hand at mapping a process that we can all relate to, a drive through window at a
fast food restaurant. Now visualize the activities from the perspective of the restaurant, we'll
start from when a customer drives up to the window to when the customer leaves with the order.
First the customer enters the line, the queue then reaches the kiosk which has the menu and
the microphone and speaker. The employee greets the customer, employee receives the order,
confirms the order and the amount, asks that you drive up to the pick-up window. The food and
drinks are being prepared in the background while another employee takes your payment. Next,
you wait a minute or two and then the employee gives you your food and drinks and then the
customer leaves. Now in a service process, the line of visibility depicts the customer facing and
the backroom parts of the process. Drawing this process map has hopefully given you an idea
of how to draw such a map. It must have also raised some questions in your mind. No doubt.
How details should this be? Can I add data about times? How do I handle it when there are
different types of customers who want different things? What happens when there are errors in
the process, when somebody has given me the wrong order and have to go back? These are all
good questions that a process map is meant to bring out. It's meant to evoke those questions.
So a process map is a good starting point for analyzing the process.
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Some things to think about before you map a process. First, decide where does the process
start and end be specific in terms of whether it is starting when the customer enters the store or
gets in line or when the customer reaches the register. Now you can decide based on your
purpose of that mapping exercise. For a product it could be from when a customer placed in
order or it could be starting from when the production process started.
Second, identify and sequence the activities depicting the parallel ones in a separate sequence.
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Third, decide how detailed you want the map to be. You can combine or breakdown activities
based on how granular you want your process analysis to be.
Fourth, plan for the process metrics, you want to measure.
Fifth, draw the process map or the chart based on what you have decided for the level of details
and the level of the metrics.
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Now, here are some examples of processes that also include what is the flow unit. The flow unit
is the thing that we are tracking through a process. So it's the unit that is flowing from start to
end and the starting and the ending points. First, orders being received and product delivered.
Second example, customer complaint received an issue resolved hopefully to the satisfaction of
the customer. Third is a new product development process starting from the product need being
recognized by the customer to a prototype being created by the company. Fourth, it could be
cash that is from expenses to receipt. You spend the money and then you receive the money,
you spend the money to make the product and then you received it from the customer. Now
these are examples with different flow units and specific start and end points in closing
processes are everywhere around us and every process can be improved.
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Lesson 2-5: Metrics to Assess Performance
Lesson 2-5.1. Metrics to Assess Performance
Let's see how we can analyze the process and here we will treat the process as a closed box,
so we will analyze the entire process as a whole. And analyzing the process requires using a
set of process measurements.
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Throughput time is a metric that can best be described as starting your stopwatch when a unit
starts in the process and stopping your stopwatch when the unit exits the process. Throughput
time that includes when something is happening to the unit. For example, a cookie that is being
manufactured or a customer that is placing in order. And it also includes when cookies or
customers are waiting between activities. When there are parallel pads, when the top and
bottom cookie for a sandwich cookie are being baked while in parallel the vanilla cream that will
be sandwiched is being made. The longer of the two will impact the throughput time.
Throughput time is measured in seconds and minutes for short or high speed processes and it
could be measured in days and even months for longer processes.
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Here are two examples of throughput time and you can use these to visualize its measurement.
Now let's say you're standing outside the Jarling's Frozen Custard shop on Kirby avenue, not far
from the Gies College of Business. You can visualize using a stopwatch to measure the start
and end time of a car entering the drive-thru and the car leaving the drive-through. In this
example that is 4.5 minutes. Similarly, starting the assembly of a Subaru SUV, timing the
assembly line from task one to when the finished SUV rolled off the assembly line is 17.5 hours.
The metric of cycle time can be visualized as standing at the end of the process and using a
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stopwatch to measure the time between unit one and unit two or customer one and customer to
exiting from the process. Now this is a time interval, so the unit is measurement, unit of
measurement is still days, hours, minutes or seconds. The definition says average cycle time
here because this time is calculated based on one or more units getting through the process
together. For example, two cars from two lines at the drive through or five assembly lines
outputting five cars at a time. The metric of cycle time accounts for such multiple units and takes
the average time. In fact, most commonly processed metrics are calculated based on averaging.
First, to allow for multiple units together and second, to allow for variation. Cycle time of one
minute and three minutes will average to two minutes.
To help clarify the meaning of cycle time, imagine that you assess the time between two cars
leaving the drive-through of the ice cream shop to be two minutes and the time between two
finished SUVs exiting the Subaru plan to be 1.5 minutes, that is 90 seconds. Now here it can
help to note that a Subaru SUV coming off of the line every 90 seconds is not indicating how
long it takes for the SUV to get assembled, it takes much longer to assemble that SUV. There
will be many SUVs at various steps, various activities in the process at any given point in time
and it just so happens that an SUV is coming off the line every 90 seconds.
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Flow rate, flow rate is the rate at which units emerge. It is a rate measured as units of product or
customers per unit of time.
You must be thinking flow rate is related to the metric of cycle time and you would be right. They
are both the reciprocal or the inverse of each other. Cycle time is time between units of products
or between customers and flow rate is units of product or customer per unit of time. So inverse
of cycle time is flow rate, inverse of flow rate is cycle time.
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In this example, the cycle time for customers at Jarling's Frozen Custard is 2 minutes. So the
flow rate is 1 divided by 2, which is 0.5 customers per minute. Now you multiply by 60 to convert
two customers per hour and it gives you 30 customers per hour. So the flow rate at Jarling's is
30 customers per hour.
In this example, the cycle time for SUVs is 1.5 minutes or 90 seconds. And the question is, what
is the flow rate, how many SUVs every shift with the shift being 8-hours? So 1 divided by 90
seconds, multiplying by 60 by 60 because we want to convert to hourly and then by 8 because
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we want to convert to per shift, so you get 320 SUVs per 8 hour shift and that is the flow rate.
So we can say that the Subaru assembly line produces 320 SUVs per shift.
The metric of flow rate is something that we all use commonly, perhaps without calling it flow
rate. You can think of flow rate as how much is being produced per unit time or in terms of how
much can be produced per unit time, think of it as observed capacity or potential capacity of a
process. So flow rate is kind of analogous to capacity.
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Putting the three metrics together for the process, treating the process as a box, putting them
together. Throughput time is total time elapsed from start to end, flow rate is units per unit time,
cycle time is time between units. It's the inverse of flow rate. Most commonly all these metrics
are used in terms of their averages.
To give another example of a car wash. We are treating the different steps in the car wash, the
pre wash, the soap application, the water runs, the drying off the car all these steps were
treating them as one overall process. It's a box process. You can visualize the process in this
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way. Turning to the process metrics for this car wash process, the throughput time, time from
coming in to going out is 5 minutes. Now, here, it is important to observe that we can have
multiple cars in the car wash, they can be at different activities, right? One can be at the pre
wash stage, another car maybe at the rinsing stage and a third car maybe at the drying stage.
Regardless the entire process for a single car takes 5 minutes. That's the throughput time.
Next the time between two cars exiting this car wash. Now here, that's the difference between
any two consecutive cars, right? Any to drive out times that you want to take from this table, the
difference is 3 minutes. This is the cycle time, time between two units. Now note that in this car
wash this time is constant, that is all the times between cars are 3 minutes. It does not always
have to be the case. And that is why we say average cycle time, which would be averaging of all
the times between exiting cars In a sample of observations. Again, here, a car is exiting every 3
minutes. The flow rate is going to be the reciprocal of the cycle time. So that is one divided by
the cycle time. So 1 divided by 3 minutes gives us 1/3 car per minute, multiplying 1/3 by 60
gives us 20 cars per hour. So the flow rate is 20 cars per hour.
Now, the question you might be asking is, why are these process measurements important?
How are these metrics even relevant? Throughput time is relevant because it tells us how much
time from start to finish. Also commonly thought of from a customer perspective as lead time.
You can tell a customer that they should expect to take that much time to go through the
process or that their order for a product will take that much time once they place an order.
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Flow rate is commonly the capacity. Thus it identifies how much the process can output, which
will dictate how much you can make and sell how much revenue your business can make every
hour or day or month.
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Lesson 2-6: Little’s Law
Lesson 2-6.1. Little’s Law
Let's start with defining the metric of inventory as it relates to a process. Inventory is the total
number of units through the process, at any stage before or in the first activity of the process, in
the second or third activity, or as a finished product at the end of the process. It includes raw
materials that are considered to be within the process boundary, works in progress that are
anywhere in the middle of the process, and finished products waiting to leave the process. It is
measured in whatever the flow unit is, for example, it could be number of cookies, it could be
kilograms of breakfast cereal, it could be number of patients in a health clinic, or even the
number of emails in your mailbox.
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Little's law relates the throughput time, time that passes from start to end for a unit and the flow
rate, the rate at which units are being processed to the inventory, the number of units in that
process. Little's law is represented by this short formula. Inventory in the process, also referred
to commonly as inventory in the system, is throughput time times flow rate. Formally stated,
average inventory in a process is the product of average time a unit spends in the process and
the average rate of flow for that process.
In order to illustrate Little's law, we can check the relationships among I, T, and R from this
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simulation of customers going through a process. You will need a stopwatch for the simulation
that can measure time in seconds, and you will need to observe very carefully and count as I
advance the simulation. The first thing you will do is count the seconds that it takes the first
customer to go through the process. The second thing is counting how many customers are
leaving the process every second. The process is this gray box. The position of the start and
end points of this box are important as you're going to be timing people going through the
process and counting people that are in the process. Focus on the start and the end of this gray
box. Your first task is going to be counting the number of seconds that it will take for the first
customer to go through. You will start the stopwatch when the customer enters the gray box and
stop the stopwatch when the customer leaves that gray box. Here come the customers who are
going to enter the process box. Get ready with your stopwatch. Start the stopwatch when the
first customer enters this gray box, stop it when the customer leaves.
Now, you should have the throughput time, the time that it took the customer to go through. In
the next click, when the simulation advances, you can see how many customers are leaving the
process in one second. Keep an eye on your stopwatch and at the same time, count the
customers that are leaving.
Now, you should have the flow rate. Next, you can observe how many customers appear to be
in this box. Count the half at each entry and the half at the exit point as being one. What is the
total number in this process? That will give you the inventory.
Now, you have the throughput time, the flow rate, and the inventory in this process. You can
verify any of these metrics as the simulation advances on the next click.
Now that you have the measurements, here they are. Throughput time, three seconds, flow
rate, two customers per second, and in-process customers in that gray box is six. This matches
with the relationship that will be predicted by Little's law. Six customers is equal to 3 seconds
multiplied by 2 customers per second.
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Here's an example to observe the relationships predicted in Little's law. There is a one-lane
tunnel. First piece of information is cars enter and leave at one car every five seconds. The
second piece of information is, it takes 20 minutes for a car to go through the tunnel. The
question is, how many cars are in the tunnel at any time? That is, if you were to take a snapshot
of that tunnel, pausing the tunnel video, so to speak., how many cars would you expect to find in
the tunnel?
Here's that scenario depicted in a diagram. Now, the intuitive computation that you might have,
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even without knowing Little's law, is how many five seconds are there in 20 minutes? Because a
car enters every five seconds, takes 20 minutes to go through. This calculation works out to
240. Now, based on Little's law, throughput time or T is 20 minutes, flow rate or R is 1/5 of a car
every second or 12 cars per minute. Note that we have to have the metrics in matching units.
Throughput time was in minutes and that required that we convert flow rate into cars per minute.
Now, using Little's law, inventory I is equal to T times R, which also gives us 240 cars. Here you
can observe the units for each of the metrics and note that minutes multiplied by cars per
minute gives a result that is in cars.
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Lesson 2-6.2. Little’s Law Applications
We can apply Little's law to a question of customer retention. Here the data provided is for three
cell phone companies. These are made up names, but they may be similar to some names that
you know for cell phone companies. The first companies K-portable, the second one is
Remarkable, and the third one is Horizon. We have the size of the market in average number of
subscribers, and we have the churn rate. This is a marketing term which is used to calculate the
percentage of subscribers joining and leaving that cell phone company each month. The
question is, how long does a customer stay with each cell phone company?
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Here's a visual of the question. Translating this information in terms of inventory, the number of
customers, and flow rate, churn rate, which we need to adjust to number of customers per
month. So we take three percent of 11.42, that gives us 0.342 million per month, and so on for
the other two. We can get the average time an average customer stays with each of the three
cell phone providers. We take the formula I equals T times R and calculate for T. So T is equal
to I divided by R. You can see here that Horizon customers are retained for the longest period of
time on average.
44
We can use Little's law to decide the rate at which customers are checking out from the
supermarket. Here, the average customers in the store is a hundred, so inventory or I is 100
customers. Average time spent by a customer in the grocery store, in the supermarket is 30
minutes, so throughput time or T is 30 minutes, and the rate of checkout is going to be R, which
is I divided by T. So 100 divided by 30 gives us 3.33 customers per minute, and that is 200
customers per hour.
Little's law can be used to determine the seating space needed in a restaurant that is based on
45
the number of customers that are in the restaurant if you know the rate at which customers visit
the restaurant, and the average time a customer spends in the restaurant eating their meals.
Here the flow rate is given to us as 150 customers per hour and customers spend on average
20 minutes in that space. So how many customers on average are in the restaurant? I equals R
times T. We convert the 20 minutes to hours by dividing it by 60. This is done to match the units
for the flow rate, which is customers per hour. So the answer shows us that you need to plan for
50 customers to be seated in the restaurant, so if you're planning for how many tables and
chairs, you're planning for 50 customers to be seated in the restaurant.
Here are several examples of using Little's law to calculate one of the three components from
knowing the other two. You can see the applicability of this calculation in a variety of scenarios
with a range of speeds of processing from a fast-moving process in a factory where the flow
units are semiconductors, to the question of a slower moving rate for sales of houses in a real
estate example. The formula for Little's law enables us to calculate the third component from
knowing two components.
46
Now, Little's law applies under certain conditions. First, that units arrive and leave at the same
rate. The flow rate is input rate as well as the output rate. Second, there is no loss of units in the
process. All units that enter the process or the system also leave it. Third, the inventory in the
system or in the process is constant. There's little variation in the amount of inventory in the
process. Fourth, the age of the inventory, the number of days the units stay in the system, or the
number of minutes the units stay in the system or the process does not very much. Now you
might say these assumptions seem restrictive and somewhat unrealistic. But you can take a
positive perspective of these assumptions. They provide ideals to aspire to. That is, you want to
get as close as possible to making these assumptions hold. Let's take them one at a time. The
first one translates to having a smooth flow rate. The second one translates to reducing the
waste or the scrap in the system or the process, so that you reduce the need to reject and throw
away units being produced. That would be a good thing. Third, also has to do with a steady
work rate and the fourth assumption, you use first-in, first-out, so you prioritize based on time of
entry in the process or system. Customer who walks in first is being catered to first, second
second, so on and so forth. In other words, the assumptions for Little's law also provide good
target conditions for making process improvements.
47
Lesson 2-7: Activities Within Processes
Lesson 2-7.1. Activities Within Processes
Let's see how we can analyze the process. And here we will focus on not just the entire process
but on the individual activities that are part of the process. The steps that are in the process. We
will use measurements of individual activities and steps and we will study their relationships with
each other and their impact on the performance of the entire process.
48
Introducing the first metric for an individual activity. Processing time, processing time is the time
it takes to get that activity done. So it could be for example that I bake cookies in 12 minutes.
That's the processing time. Note that it takes 12 minutes to bake a batch of cookies. However,
processing time is just that 12 minutes. Whether we bake one cookie or we bake a batch of any
number of cookies that's possible, it's still 12 minutes. It is measured as time, so in minutes,
seconds etc.
Capacity of an activity is measured as a rate number of units of product that can be processed
49
per unit of time. Now, this will be affected by the number of units that can be processed
simultaneously. So a batch of eight cookies that takes 12 minutes to get done in one oven gives
us a capacity of that baking task to be eight divided by 12, So two third or 20.67 cookie per
minute. We multiply by 60, it is 2/3 of 60. So 40 cookies per hour. Now, if we have two ovens
that can bake cookies simultaneously, eight in each oven, Then the capacity doubles, it is now
80 cookies per hour. Note here that the processing time for baking remains 12 minutes. The
baking time does not reduce whether we bake one cookie or we bake 16 cookies and two
ovens.
Using an example of baking birthday cookies, this process consists of three activities three
steps. First, roll out and shape a cookie. Second, you bake and this is baking eight at a time.
Third, we wrap each cookie in an individual wrap. As a side note, this process uses a wrap
made, made of biodegradable paper that protects the cookie and has minimal impact on the
environment. Now let's put processing time for each of the three activities on this process map.
So three minutes, 12 minutes and one minute. Use these activity processing times to calculate
the capacity for each activity, number of cookies produced simultaneously, divided by the
processing time. So one divided by three, gives us 1/3 per minute or 20 per hour. Eight divided
by 12 gives us 40 per hour. Or you can say five batches of eight per hour. Wrapping the cookie
has a capacity of one per minute, so 60 per hour.
50
What's the bottleneck? A bottleneck is an activity among activities in the process that has the
smallest capacity. The bottleneck or bottlenecks. If there are more than one with that same
smallest capacity determines the flow rate of the entire process. The bottleneck activity in the
process is like two lanes on, the street being reduced to one lane, the capacity off that street.
How many cars can pass through per hour is going to be based on the one lane portion of that
street. It is worth noting here that the bottleneck is based on the lowest capacity activity and not
based on the largest processing time of an activity.
51
Using an example of making cookies to demonstrate the idea of a bottleneck. You see here
three activities with their processing times given and their capacity is calculated. We can identify
the bottom link activity based on the lowest capacity. So with the capacity of 20 per hour, the
first activity of rolling out and shaping cookies is the bottleneck activity. The flow rate of the
entire process is based on the capacity rate of the bottleneck activity. The process can produce
cookies at the rate of 20 per hour. It's worth noting here that comparing processing times, you
can see that baking has the largest processing time and here it is not the bottleneck.
52
How many people are machines or people machine combinations or teams we have at each
activity. That is what we can define as the number of resources at each activity. For a cookie
baking process, we can observe the different employees baker, wrapper, anyone else, the
equipment, the oven, the rolling pins and these types of things as resources.
Let's see the impact of changing the number of resources. Here, we're adding a resource at the
bottom lake activity, which is the first activity in this process. So let's say we install another
station and hire an employee and provide a rolling pin and cookie cutters, etc. The other
53
activities still have one resource each. To generalize the calculation as a formula. The capacity
of each activity is the number of resources multiplied by the number of units being worked on
simultaneously by a single resource. And then we divide that product by the processing time. So
here for activity one that is 40 per hour; for activities two and three, using the same formula we
get 40 per hour and 60 per hour. What is the flow rate of this three activity or three step
process? We need to identify the bottleneck that is based on the lowest capacity. Here we have
activities one and two, both of them with capacity of 40 per hour. So the flow rate for this
process is going to be 40 cookies per hour.
The process flow rate calculated based on the capacity of the bottleneck activity basically gives
us the process capacity. Absent of any other information we can say that process can produce
at this rate per unit time. So cookies per hour or cookies per day etc.
54
Lesson 2-8: Capacity Utilization
Lesson 2-8.1. Capacity Utilization
The metric of demand rate is based on the demand which comes from outside the process.
Demand comes from the customer of the process. Now the customer of the process can be an
external customer, the final customer for your product, or it can be an internal customer, the
next process in the production of the goods or services.
55
When we have information on the demand rate, we can say that the process will flow at the rate
that is the lower of the two. The capacity of the bottleneck activity, and the demand rate.
Basically what we're saying is that in cases where the demand is lower than what the product
process can produce, the process is not going to produce at a faster rate than the demand rate.
The metric of capacity utilization can be understood based on the intuition that utilization is the
ratio of what a process is doing to what a process can do. In short, doing divided by can do.
56
More formally, the capacity utilization is the flow rate of the process divided by the capacity of
the activity.
In order to calculate the capacity utilization of this three activity process, we first identify the
bottleneck activity. The flow rate for the process based on this activity is 20 per hour. Now we
can calculate the capacity utilization for each of the activities. Again, the flow rate of the process
is 20 per hour because we are basing this calculation of the capacity utilization on the
bottleneck. We are basing it on the fact that the bottleneck is 100% utilized. Activity 2, 50%
utilized and Activity 3, 33% utilized.
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Now, here's the three activity process with processing times and resources. The additional
information here is that the demand rate is 18 units per hour, customers are demanding this
product at 18 units per hour. What is the capacity utilization for each activity? Because the
demand rate is lower than the flow rate of the bottleneck, the demand rate becomes the flow
rate for the process. Here the utilization is going to be the flow rate of the process divided by the
capacity of the activity. Activity 1, 90% and Activities 2 and 3, 45%, and 30%. The activity with
the lowest flow rate has the highest utilization, the bottleneck has the highest utilization.
58
Some general observations about utilization of activities in a process. The bottleneck, the
activity with the lowest flow rate has the highest utilization. Increasing the flow rate for the entire
process requires to increase the flow rate, also known as capacity of that bottleneck activity or
the demand rate, whichever of the two is lower. Because the bottleneck constraints the process,
it is important to get production to the extent of its potential. As long as an activity is a non-
bottleneck activity, losing some capacity at that activity will not affect the process capacity
unless and until that activity capacity falls to the level at or below the bottleneck capacity.
Capacity changes may cause the bottleneck to shift, may cause it to change.
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Capacity utilization can get impacted by any reduction in the realization of the capacity because
of stoppages or errors. Now, stoppages can be for changing over from making one product to
another or they can be for things like machine breakdowns. Capacity utilization is also impacted
by the errors, by creation of product that has to be scrapped, by time taken by the errors that
had to be corrected. Capacity utilization is also impacted by variation in the performance of
machines and the performance of employees that are working on the activities.
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Process Configurations and Matrics

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Operations Management: Organization and Analysis

Professor Gopesh Anand and Ujjal Kumar Mukherjee

Module 2: Process Configurations and Metrics

Lesson 2-2: Types of Process Arrangements ..................................................................................... 5

Lesson 2-3: Process Arrangements for Competitive Differentiation ................................................ 13

Lesson 2-4: Process Mapping .......................................................................................................... 18

Lesson 2-5: Metrics to Assess Performance .................................................................................... 28

Lesson 2-6: Little’s Law ................................................................................................................... 38

Lesson 2-7: Activities Within Processes .......................................................................................... 48

Lesson 2-8: Capacity Utilization ...................................................................................................... 55

Lesson 2-1: Process Arrangements and Operations Strategy

Lesson 2-1.1. Process Arrangements and Operations Strategy

Lesson 2-2: Types of Process Arrangements

Lesson 2-2.1. Types of Process Arrangements

Lesson 2-3: Process Arrangements for Competitive Differentiation

Lesson 2-3.1. Process Arrangements for Competitive Differentiation

Operations can be designed using some surprising, some unexpected arrangements of

Lesson 2-4: Process Mapping

Lesson 2-4.1. Process Mapping

Fourth, plan for the process metrics, you want to measure.

Lesson 2-5: Metrics to Assess Performance

Lesson 2-5.1. Metrics to Assess Performance

Lesson 2-6: Little’s Law

Lesson 2-6.1. Little’s Law

Lesson 2-7: Activities Within Processes

Lesson 2-7.1. Activities Within Processes

Lesson 2-8: Capacity Utilization

Lesson 2-8.1. Capacity Utilization

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